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Novartis CEO Ends Turbulent Tenure -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 5, 2017).

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Novartis AG Chief Executive Joe Jimenez is stepping down in January after leading the Swiss pharmaceutical giant through a tumultuous eight years marked by big patent expiries and intensifying scrutiny on drug pricing in the U.S.

He will be replaced by Vas Narasimhan, Novartis's global head of drug development and chief medical officer.

Mr. Jimenez, 57 years old, joined the company in 2007 and became its CEO in 2010. He will remain available to Novartis in an advisory capacity until the end of August next year, when he will retire, the company said.

He presided over the patent expirations of Diovan for hypertension and cancer drug Gleevec, both of which generated several billion dollars annually at peak. When a drug patent expires, cheaper copycats can enter the market, sharply eroding sales.

To replace that lost revenue, Mr. Jimenez bet on a series of would-be blockbusters which have met with mixed success.

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Cosentyx, for certain rheumatological conditions and psoriasis, generated annual revenue of $1.1 billion last year, having launched in 2015.

But Mr. Jimenez's other big bet, Entresto for heart failure, was met with resistance from doctors reluctant to switch patients onto a new drug, as well as reimbursement barriers from insurers. That is changing as doctors gain more experience with Entresto and insurers gradually adopt more permissive policies, but those initial hurdles have hampered the drug's growth. Although Novartis launched Entresto shortly after Cosentyx, the heart drug's 2016 revenue came to just $170 million.

He also bet big on a new form of cancer treatment that re-engineers a patient's immune cells to make them more vigorous at fighting tumors. Last week, Novartis became the first company to win the Food and Drug Administration's approval for such a therapy, which is known as CAR-T, though questions remain over whether insurers will balk at the treatment's $475,000 price tag.

Novartis Chairman Joerg Reinhardt credited Mr. Jimenez with rejuvenating the company's drug pipeline and navigating the patent expirations of the company's two largest products.

"We anticipate a smooth transition as Joe built a strong leadership team and mentored his successor," he said. The board considered both internal and external candidates for the role, he told reporters.

Mr. Jimenez said Novartis was on a "strong path to the future" and that it was the "right moment" to hand over the reins to Dr. Narasimhan.

"A CEO should not stay much longer" than eight years, he told reporters. "You come in, see what you want to change, and change it."

Mr. Jimenez, who spent most of his career in the packaged-goods industry before joining Novartis in 2007, ushered in a period of heightened cost-consciousness at the drugs giant by gathering the company's back-office operations into a single unit.

He also slimmed Novartis down, following a period of intense consolidation by his predecessor Daniel Vasella. In 2014, Mr. Jimenez struck deals to offload Novartis's animal-health unit and most of its vaccines business to Eli Lilly & Co. and GlaxoSmithKline PLC respectively. In the same raft of deals, Novartis bought Glaxo's marketed cancer drugs and the pair pooled their consumer health care divisions, which make pharmacy staples like over-the-counter remedies, into a joint venture controlled by the U.K. drugmaker.

Novartis is in the midst of a strategic review of its struggling eyecare unit, Alcon. Mr. Jimenez told reporters he planned to complete that review, which could result in spinning off the business, before he steps down.

Mr. Jimenez's tenure hasn't been without controversy. In 2015, Novartis paid the U.S. Department of Justice $390 million to settle allegations that it had induced specialty pharmacies to boost prescriptions for its drugs by paying kickbacks in the form of rebates.

Earlier this year, South Korean authorities fined Novartis 200 million won ($176,900) and banned the company from selling certain drugs for three months for allegedly paying kickbacks to promote sales of its medicines. Novartis accepted the decision but said the actions of the South Korean staff in question weren't sanctioned by the company's higher management.

Dr. Narasimhan, 41 years old, trained in medicine and public health. He joined Novartis in 2005 from management consultancy McKinsey & Co. He was put in charge of the drugs pipeline at Novartis's pharmaceuticals division in 2014. Last year that role expanded to encompass development programs that had previously been managed separately, including cancer drugs, and he was also named chief medical officer. He will become CEO on February 1 next year.

Mr. Reinhardt said Dr. Narasimhan's medical background combined with his "significant experience managing the interfaces between research and development and commercial units" made him the right choice to succeed Mr. Jimenez.

Among his biggest challenges will be ensuring the success of Entresto and other new drugs amid growing pressure from cost-conscious health insurers in the U.S. "Novartis has been productive in R&D over the last few quarters, but this does not necessarily automatically warrant commercial success," said UBS analyst Michael Leuchten in a note to clients Monday morning.

Dr. Narasimhan told reporters it was too soon for him to comment on the next phase of the company.

Mr. Jimenez, who as CEO has been based in Basel, Switzerland, said he planned to move back to California, where he is from, with an eye to taking up a role in Silicon Valley. "It's too early to say [what I will do next], but I've always been incredibly interested in the intersection between biology and technology," he told reporters.